Automotive Private Equity: Understanding this Concept for Investing
You might hear the term “private equity” in some investment circles. Do you understand the concept, though? Some people get into private equity and make money through it. Perhaps that appeals if you have funds and want some investment opportunities.
You might also hear that automotive private equity has become popular lately. We will talk about it right now. It can make you money if you can leverage it along with someone who knows the landscape and various fluctuating market factors.
What is Private Equity?
Let’s start with a brief private equity definition. Private equity means you, along with some partners, buy and manage a company. You form an investment partnership. Eventually, you sell the company.
Usually, you and your investment partners see a company with growth potential. It might not necessarily have the capital for expansion behind it, though. You feel you can buy it, pump up its value, and then sell it, making money for everyone involved in the project.
You then move on and do the same thing again. Private equity firms do this. They often start when you have several like-minded individuals with money, knowledge, and ambition.
What About Automotive Private Equity?
If you have a private equity firm scouring the market and looking at various businesses, they might check out several different fields. They might know about the medical field and buy up some medical companies, for instance. Maybe they know about tech, so they buy and pump up a tech company before selling it for a profit.
Automotive private equity means buying up car dealerships or vehicle-related companies. If you get into this industry, you must know it well. Someone in your firm must understand when they’ve found an undervalued business and can convince the owner they can make money by selling it.
If you pump up the company and profit from it, you can leave everyone happy. The original owner might feel good about the sale, and your group can as well if they see a large profit when they sell off the asset.
How Does Automotive Private Equity Work?
If you involve yourself with a private equity firm with an automotive focus, you probably can’t buy the Ford or Hyundai companies. They’re huge, and they’re not for sale. Private equity firms usually have ready cash for investing, but not that much.
Instead, you’ll likely investigate and buy automotive dealerships. You must find ones where you feel you can increase the value before selling it off somewhere down the line.
You want not just one dealership but a portfolio. You need someone who knows the automotive industry and a particular market. For instance, maybe you’ll target a city like Detroit or Chicago. You’ll buy several dealerships and have a whole portfolio. You’ll acquire new assets and sell them when you reach the right moment. You can also invest in a vintage municipal sign because we all know the value of antique items, and car enthusiasts will definitely love buying these items.
It’s Not Easy
Private equity presents some unique challenges. When you invest your money this way, you should see a huge potential profit margin. That’s the good news. You can make your money back five or tenfold.
There are also huge risks involved, and that’s the bad news. Much like getting into crypto or the stock market, when you buy an asset, an automotive dealership, in this instance, the economy can tank and leave you holding the bag.
Something like the automotive market always has massive volatility. That’s why you must have a strong stomach for this game. You might make money, but you can also definitely lose some.
Look at a Private Equity Firm’s Track Record
Private equity firms always want new members with money. That money and your risk acceptance make you a prime candidate. If you’ve got cash and don’t mind putting it on the line in a high-risk, high-reward venture, then private equity firms will love meeting you.
If you are unsure about going into business with them, look at their track record. They need well-placed, highly-knowledgeable experts in the field they’re targeting, the automotive world, in this case.
If you see this firm has a solid track record, making a profit each year they’ve existed, meet with them.
You’ll feel each other out. They can show you their current portfolio, and they’ll discuss some potential future acquisitions they’re looking at right now. You should also meet the team that has the direct industry knowledge that informs their decisions.
If you like what they’re saying, and you’ve got the money, you might make huge profits this way.